The Growth of U.S. Natural Gas: An Uncertain Outlook for U ... · Other US 'shale' Natural gas...

www.eia.gov U.S. Energy Information Administration Independent Statistics & Analysis

The Growth of U.S. Natural Gas: An Uncertain Outlook for U.S. and World Supply

For 2015 EIA Energy Conference June 15, 2015 | Washington, D.C. By John Staub, Team Lead, Exploration and Production Analysis

Outline • Changes in U.S. natural gas

– Why resource estimates change

• Why resource estimates produced with different methods should be different and are valuable

• What we need to know about a play to get a fairly accurate estimate – Intersection of geology, technology & above-ground factors (i.e. economics, regulations, taxes)

• What we know internationally

John Staub | EIA Conference June 15, 2015 2

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30

1930 1940 1950 1960 1970 1980 1990 2000 2010

U.S. natural gas production (dry) trillion cubic feet

Source: EIA

History is easy… cumulative U.S. dry natural gas production since 1930 is 1,200 Tcf


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30

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50

60

70

80

0%

10%

20%

30%

40%

50%

60%

70%

80%

2000 2002 2004 2006 2008 2010 2012 2014

Rest of US gas productionMarcellus (PA & WV)Haynesville (LA & TX)Eagle Ford (TX)Fayetteville (AR)Barnett (TX)Woodford (OK)Bakken (ND)Antrim (MI, IN, & OH)Utica (OH, PA & WV)Other US 'shale'

Natural gas production (dry) billion cubic feet per day

Shale gas production as a percent of total gas production

Sources: EIA Natural Gas Monthly data through December, STEO through May2015 and Drilling Info.

U.S. shale gas production was 5% of total U.S. dry gas production in 2004, 10% in 2007, and is now 56% in 2015


0

15

30

45

60

1990 2000 2010 2020 2030 2040 2020 2030 2040 2020 2030 2040

U.S. dry natural gas production trillion cubic feet

Source: EIA, Annual Energy Outlook 2015

Shale resources remain the dominant source of U.S. natural gas production growth, with a range of longer-term outcomes

Tight gas

Alaska Lower 48 offshore

History 2013 2013 2013

Other lower 48 onshore

Reference High Oil and Gas Resource

Low Oil Price

Coalbed

Shale gas and tight oil plays


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5

10

15

20

25

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040

Average Henry Hub (HH) spot prices for natural gas 2013 dollars per million Btu


Future domestic natural gas prices depend on both domestic resource availability and world energy prices

History Projections 2013

High Oil Price

Reference

High Oil and Gas Resource

Low Oil Price

Reference (Brent) oil price ($142/barrel real in 2040)

HH


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-4

0

4

8

12

16

2000 2010 2020 2030 2040 2020 2030 2040 2020 2030 2040

U.S. natural gas imports and exports trillion cubic feet

billion cubic feet per day


7

Projected U.S. natural gas exports reflect the spread between domestic natural gas prices and world energy prices

John Staub | EIA Conference June 15, 2015

LNG imports

Projections History 2013 2013 44

2013

Reference Low Oil Price High Oil and Gas Resource

Pipeline exports to Mexico

Lower 48 states LNG exports

Pipeline exports to Canada Pipeline imports from Canada

Alaska LNG exports

33

22

11

0

-11

-22

Resource estimates for U.S.

8 John Staub | EIA Conference June 15, 2015

Oil and natural gas resource categories reflect varying degrees of certainty

http://www.eia.gov/todayinenergy/detail.cfm?id=17151


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Texas Pennsylvania W Virginia Oklahoma Arkansas Louisiana

2008 2009 2010 2011 2012 2013

Proved shale gas reserves of the top six U.S. shale gas reserves states, 2008-13 trillion cubic feet

Source: U.S. Energy Information Administration, Form EIA-23L, Annual Survey of Domestic Oil and Gas Reserves, 2008-13. (figure 13)

Shale gas is 45% of the 354 Tcf total U.S. natural gas proved reserves as of 1/1/2014


0

500

1,000

1,500

2,000

2,500

3,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

U.S. dry gas resources trillion cubic feet

Source: U.S. Energy Information Administration, Annual Energy Outlook 2015 and prior editions Note: Resources are as of January 1 of two years prior to the “edition” year of the AEO (e.g. AEO2015 is 1/1/2013).

Technically recoverable natural gas resources reflect new information, a combination of assessments and EIA updates

Edition of the Annual Energy Outlook

2,276

308

596

1,373

Unproved shale gas (including tight oil plays) Unproved other gas (including Alaska and offshore) Proved reserves (all types and locations)


Source: Potential Gas Committee (2015)

Industry and NGO understanding of U.S. shale gas resources has increased substantially in the past decade


(excludes proved reserves)

Marcellus


14

Adding geology improves EUR estimate quality, offers higher resolution

EUR: Estimated ultimate recovery per well Source: Energy Information Administration analysis, July 2014


County Average EUR (bcf)

Average EUR weighted by GIP tier (bcf)

ALLEGHENY 3.74 4.09

ARMSTRONG 0.91 2.72

BEAVER 2.74 2.44

BEDFORD 1.16 0.85

BLAIR 1.34 1.23

BRADFORD 5.70 3.94

BUTLER 1.74 2.72

CAMBRIA 1.46 2.43

CAMERON 0.33 2.69

County Average EUR (bcf)

Average EUR weighted by GIP tier (bcf)

SUSQUEHANNA 6.14 4.92

TIOGA 2.98 2.49

UNION 2.80 0.30

VENANGO 0.83 2.49

WARREN 1.84 2.28

WASHINGTON 2.45 3.69

WAYNE 7.49 1.34

WESTMORELAND 1.85 2.84

WYOMING 8.85 3.42

Source: Range Resources, Marcellus extent and Range Resources gas in-place outlines

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Pennsylvania Marcellus – dry gas in the Northeast, wet gas in the Southwest


SUSQUEHANNA

WYOMING

WASHINGTON

Contour (Bcf / sq mi)

Wells

0

500

1,000

1,500

2,000

2,500

0 5 10 15 20

SUSQUEHANNA_175 (8.0)SUSQUEHANNA_150 (6.5)SUSQUEHANNA_125 (3.8)SUSQUEHANNA_100 (3.2)SUSQUEHANNA_50 (2.5)SUSQUEHANNA_75 (2.5)Marcellus avg. (AEO2015) (1.9)Marcellus avg. (AEO2012) (1.6)

Dry natural gas production from average well over 20 years million cubic feet per year

Susquehanna, PA EURs by vintage billion cubic feet


Two additional years of data show increase in productivity of wells, and sub-county detail captures economic drivers

1


EUR (Bcf/well)

Cumulative dry natural gas production (i.e. EUR, Estimated ultimate recovery per well) billion cubic feet

17

Distribution of EURs in the Marcellus

Source: EIA analysis for AEO2015 conducted in July 2014, and thus limited 2014 data available.


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2008 2009 2010 2011 2012 2013 2014Mean EUR

(bcf/well) 0.39 1.62 5.13 5.81 5.78 6.37

Number of wells 1,200 1,030 1,474 2,277 2,191 302

minimum

maximum

25th percentile mean 75th percentile

18

Estimates of Marcellus resources for Pennsylvania with no excluded areas

Source: EIA http://www.eia.gov/workingpapers/pdf/geologic_dependencies.pdf October 2014


http://www.eia.gov/workingpapers/pdf/geologic_dependencies.pdf

Play

Area with Potential1

(mi2)

Average Well

Spacing (wells/mi2)

Average EUR Unproved Technically

Recoverable Resources Proved

reserves Cumulative production

Natural Gas (Bcf/well)

Natural Gas (Tcf)

NGPL (Bbls)

Natural Gas (Tcf)

1990-2013 (Tcf)

Barnett-Core 363 8.0 1.621 4.7 0.2 26.0 12.6 Barnett-North 1,611 8.2 0.467 6.2 0.2

Barnett-South 5,368 8.0 0.154 6.6 0.3

Fayetteville-Central 2,065 8.0 0.973 16.1 0.0 12.2 4.6 Fayetteville-West 773 8.0 0.700 4.3 0.0

Haynesville-Bossier-LA 1,883 6.0 4.279 48.3 0.0 16.1 8.7 Haynesville-Bossier-TX 1,521 6.0 2.735 25.0 0.0

Marcellus Foldbelt 869 4.3 0.323 1.2 0.0 64.9 7.8 Marcellus Interior 17,200 4.4 1.897 143.8 5.5

Marcellus Western 2,688 5.5 0.255 3.7 0.2

1 Area of play that is expected to have unproved technically recoverable resources remaining 2 Includes lease condensate

Technically recoverable tight/shale oil and gas resources in several shale gas regions


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1

2

3

4

5

6

7

2000 2005 2010 2015 2020 2025 2030 2035 2040

Marcellus Haynesville/Bossier Other Eagle Ford Barnett Utica Fayetteville Woodford Bakken Antrim

Dry shale gas production by selected plays trillion cubic feet

Cumulative production trillion cubic feet


The Marcellus is the largest shale gas play over the long-term

History Projections 2013


(1990-2013)

(2014-2040)

Marcellus 8 147 Haynesville/Bossier 9 79 Other 9 63 Eagle Ford 2 52 Barnett 13 38 Utica 0 27 Fayetteville 5 26 Woodford 3 17 Bakken 1 8 Antrim 3 2 Total 52 459

The shale gas technology story is only beginning, with much yet to be written

• Technology is creating new resources out of rocks

• Production data provides a rearview mirror perspective – see the changes, but with a delay

– EIA does not anticipate step changes in technology applications

– EIA does recognize and incorporate long-term technological change

• Annual re-estimating of U.S. plays is necessary – new data is providing significant new detail of what production is possible

• Broad implications exist for world wide oil and gas production


TRR Does Not Reflect the Expected Future • TRR is a comparative benchmark metric, but its magnitude is difficult to

interpret physically – Good estimator of relative potential of different plays

– Consistent under-estimator of total volume of gas that will be extracted in future

• TRR intentionally ignores sources of significant, coupled uncertainties (conservative estimate):

– Future technology improvements – Although continuous incremental improvements can be modeled a la Moore’s Law for microprocessors, the emergence of disruptive technologies is difficult to predict

– Economic considerations – The price of natural gas can drive investments, leading to greater recoverability than estimated in TRR

– Political/Regulatory environment – Changes can change access to and/or economic feasibility of certain plays


Accounting for interference may require substantially more wells than a non-interfering expectation

0%5%

10%15%20%25%30%35%40%45%

0 2 4 6 8 10 12 14 16 18 20number of wells

previously drilled wells (no interference)

additional wells assuming no interference

additional wells assuming interference

recovery percentage of in-place hydrocarbons

Source: EIA illustration

illustrative economic and technologic limit


International


World natural gas production will diversify Natural gas production trillion cubic feet

Source: EIA International Energy Outlook 2013, Reference case

0

50

100

150

200

2010 2015 2020 2025 2030 2035 2040

Other natural gas tight gas, shale gas and coalbed methane


Source: EIA/ARI Supplement 2015 Preliminary Release

Map of 106 basins assessed for shale oil and shale gas resources in 46 countries


Algeria’s pipeline infrastructure proximity to shale basins

Source: EIA, ARI, IHS_EDIN


Technically recoverable shale gas resources are about 30% of total world natural gas resources

Wet natural gas

(trillion cubic feet) United States Shale gas 665 Non-shale 1,766 Total 2,431 Shale as a percent of total 27%

Total World Shale gas 7,299 Non-shale 15,583 Total 22,882

Shale as a percent of total 32%

Source: EIA; EIA/ARI 2013; O&GJ Dec. 2012 and USGS 2012


Source: US EIA, Canada National Energy Board, Fact Global Energy, Chevron, Yacimientos Petroliferos Fiscales

Countries producing shale gas oil in 2014

51%

0 15 30 45 60 75

UnitedStates

Canada

China

20% of total(18% in 2013)

Other gas Shale gas

billion cubicfeet per day

2% of total(<1% in 2013)

51% of total (47% in 2013)


Areas of uncertainty in the outlook

• Global development of tight oil and shale gas resources – EIA is gathering geology and production information, and conducting outreach

• Increasing global trade of natural gas and HGL in addition to oil – EIA is integrating the representation of oil and natural gas supply and other hydrocarbons

• Impact of geopolitical tensions on energy supply – EIA exploring options for representing these uncertainties in the outlook


Why long-term projections might could will be wrong

• Different relative fuel prices

• Faster / slower demand growth

• Changing policies and regulations

• Changing consumer preferences

• Faster / slower technological progress

• Technological breakthroughs


For more information U.S. Energy Information Administration home page | www.eia.gov

Annual Energy Outlook | www.eia.gov/forecasts/aeo

Short-Term Energy Outlook | www.eia.gov/forecasts/steo

International Energy Outlook | www.eia.gov/forecasts/ieo

Today In Energy | www.eia.gov/todayinenergy

Monthly Energy Review | www.eia.gov/totalenergy/data/monthly

State Energy Portal | www.eia.gov/state

Drilling Productivity Report | www.eia.gov/petroleum/drilling


http://www.eia.gov/

http://www.eia.gov/forecasts/aeo

http://www.eia.gov/forecasts/steo

http://www.eia.gov/forecasts/ieo

http://www.eia.gov/todayinenergy

http://www.eia.gov/totalenergy/data/monthly

http://www.eia.gov/state

http://www.eia.gov/petroleum/drilling

Supplemental Slides


• Volumetric approach – Volume of rock

– Identify share of area with potential

– Estimate oil and gas in-place based on pore space

– Apply geology and above-ground risk factors to “de-risk” the developable resource

– Multiply by a recovery factor (informed from U.S. experience)

• Generally 20% to 30% for natural gas

• Performance approach – Areal extent of shale

– Identify share of area with potential for development, using detailed information on geology within individual formations that are being assessed.

– Number of wells per unit area

– Estimated average production over the life of a well (estimated ultimate recovery (EUR)) from similar types of shale formations in U.S.

34

Comparison of methodologies



35

Distribution of EURs in the Barnett



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2008 2009 2010 2011 2012 2013 2014Mean EUR

(bcf/well) 2.08 2.35 2.62 2.89 2.59 2.47 1.74

Number of wells 4,872 2,785 3,112 2,800 1,919 1,118 97

minimum

maximum



36

Distribution of EURs in the Fayetteville



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2008 2009 2010 2011 2012 2013 2014Mean EUR

(bcf/well) 2.57 3.14 3.38 3.3 3.38 3.38 3.03

Number of wells 1,338 1,650 1,726 1,634 1,423 960 35

minimum

maximum



37

Distribution of EURs in the Haynesville



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2008 2009 2010 2011 2012 2013 2014Mean EUR

(bcf/well) 2.6 5.32 6.33 6.24 6.29 6.32 3.72

Number of wells 237 981 1,713 1,973 889 388 39

minimum

maximum


Key concepts • Gas in place (GIP)

– Total amount of gas that exists in reservoirs (including shale) in a field (field: geographic area, geologically related)

– GIP cannot be directly measured, only inferred from maps of geologic parameters

• Technically recoverable resources (TRR) – Amount of gas that could be produced from a field using currently available technology and production

practices, but regardless of economic viability – Includes historical production, known proved reserves, plus estimate of areas not yet tested

• Economically recoverable resources – Amount of gas that would be produced economically from a field using currently available technology and

production practices, and assuming current economic (e.g., costs, prices) conditions continue without change

• Estimated ultimate recovery per well (EUR) – Estimate of total gas that will be produced by any given well – Based on historical production data and decline curve fit


For more information Subject matter experts for this presentation: Dana Van Wagener, Senior Analyst, Exploration and Production Analysis Team [email protected], 202-586-4725 Troy Cook, Senior Petroleum Engineer, Exploration and Production Analysis Team [email protected], 202-586-4493 John Staub, Team Lead, Exploration and Production Analysis Team [email protected], 202-586-6344 Faouzi Aloulou, Economist, Exploration and Production Analysis Team [email protected], 202-586-1344 John Staub | EIA Conference

June 15, 2015 39

mailto:[email protected]




40

Resource and technology assumption changes from Reference to High Resource case

Shale gas specific (L48) High Resource case

New plays Focused on tight oil in plays not considered in the Reference case

Well spacing 100% more wells/area (50% reduction in acre spacing)

Interference effects (diminishing returns)

IP rate increased 20%, but decline curve shifted to lower estimated ultimate recovery (EUR) to 80% of Reference once drill # of Ref case wells in county

Technology: production Well EURs 50% larger 1% increase/year with no end date

Other resources High Resource case

Offshore 50% increase in undiscovered resources

Alaska: undiscovered resources

50% increase in undiscovered resources


Ongoing work to improve projections • Leverage the Bayesian inference approach already used by AEO modelers (EIA

currently operates at higher levels of resolution than many other organizations active on this issue)

• Incorporate geologic dependencies to inform model assumptions of future well performance

– presented to American Statistical Association in November 2013 – prototype is under construction

• Conduct geo-statistical analysis to improve empirical measures of optimal well spacing and the profile of diminishing returns from infill drilling

• End result: separate impact of incremental technological change from geologic information when describing potential changes in resource size estimates


Play-level EURs are based on historical well performance • Individual well performance analyzed (2008-2013)

• Historical production fit to hyperbolic decline curve

where, 0 < b < 2 and 0< Di <1

– Step 1: Solve for Qi, b, and Di with 0.001 < b < 2 and 0 < Di < 1

– Step 2: If not converged, set b = median b determined in previous step then solve for Qi and Di with 0 < Di < 1

• median b by drill_type, vintage_year, field, and county

• use lowest available disaggregated median

– Step 3: If still not converged, set b = median b by drill_type and vintage_year from Step 1

• Extend production through 360 months -- convert to exponential decline when annual decline rate reaches 10%


Top ten countries with technically recoverable shale resources

Shale gas Rank Country Trillion cubic feet

1 China 1,115

2 Argentina 802

3 Algeria 707

4 United States* 596

5 Canada 573

6 Mexico 545

7 Australia 429

8 South Africa 390

9 Russia 287

10 Brazil 245

Total for 46 countries

7,550

Shale oil Rank Country Billion barrels

1 Russia 75.8

2 United States* 78.2

3 China 32.2

4 Argentina 27.0

5 Libya 26.1

6 UAE 22.6

7 Chad 16.2

8 Australia 15.6

9 Venezuela 13.4

10 Mexico 13.1

Total for 46 countries

418.8

• Excluding U.S. proved shale reserves (10 billion barrels of tight oil and 159 trillion cubic feet of natural gas) • Source: EIA, USGS and ARI 2015 Preliminary Results


Composition of natural gas plant liquids State ETHANE PROPANE BUTANE ISOBUTANE PENTANES PLUS AK ALASKA 0% 1% 28% 11% 59% AL ALABAMA 41% 27% 11% 7% 15% AR ARKANSAS 7% 27% 19% 12% 35% CA CALIFORNIA 0% 44% 0% 29% 26% CO COLORADO 39% 29% 11% 6% 15% IL ILLINOIS 40% 40% 3% 12% 5% KS KANSAS 31% 38% 8% 11% 12% KY KENTUCKY 3% 63% 18% 5% 12% LA LOUISIANA 41% 29% 10% 8% 13% MI MICHIGAN 37% 30% 10% 12% 11% MS MISSISSIPPI 33% 33% 14% 7% 13% MT MONTANA 0% 49% 25% 8% 19% ND NORTH DAKOTA 2% 52% 24% 5% 17% NM NEW MEXICO 45% 29% 9% 5% 11% OH OHIO 1% 51% 18% 13% 17% OK OKLAHOMA 36% 34% 12% 6% 13% PA PENNSYLVANIA* 43% 32% 10% 5% 10% TN TENNESSEE 39% 36% 11% 4% 9% TX TEXAS 43% 29% 5% 12% 12% UT UTAH 21% 35% 13% 9% 23% WV WEST VIRGINIA 2% 57% 18% 8% 15% WY WYOMING 33% 33% 16% 3% 15%

*Ethane was adjusted from the published volumes to account for the ethane rejected. Source: EIA analysis of various sources for input into Annual Energy Outlook 2015 modeling John Staub | EIA Conference June 15, 2015 44

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